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MedPAC Approves Physician Payment Plan, Overlooking Concerns About Offsets

By Rebecca Adams, CQ HealthBeat Associate Editor

October 6, 2011 -- Despite overwhelming provider opposition, the Medicare Payment Advisory Commission voted 15-2 to recommend a draft proposal to junk the physician payment formula that has caused problems for a decade and offset the costs to fix it with other Medicare cuts.

Even the American Medical Association (AMA), whose top priority is to eradicate the flawed formula, opposes MedPAC's proposed fix.

"Offsetting part of the cost of repeal through drastic cuts and long-term freezes to physicians falls far short of what is needed to preserve patients' access to care," AMA President Peter W. Carmel said in a written statement.

Almost all health policy experts agree that the physician payment formula, known as the sustainable growth rate (SGR), does not work as intended. Congress has repeatedly staved off scheduled cuts in physician rates that were set by the formula. But the cost of permanently fixing the problem grows with every temporary reprieve. In January, the formula would result in a nearly 30 percent payment cut for physicians if Congress does not vote to prevent it.

The MedPAC recommendation would replace the problematic SGR formula with a 10-year fee schedule that would freeze primary care payment rates and cut rates for other providers by 5.9 percent for three years before freezing those payments as well. MedPAC included a list of offsets totaling $220 billion over a decade that Congress might consider to pay for the new physician payment rates. About 34 percent of the funding for the changes would come from the drug industry; 21 percent from post-acute care, such as skilled nursing facilities and home health agencies; 15 percent from higher cost-sharing by beneficiaries; and 11 percent from hospitals.

Representatives of medical providers—who packed the room so tightly that a number of people had to stand—were not happy with the proposed cuts. They had expressed concerns about the proposal when it was unveiled.
Several groups had written letters also opposing the plan. 

Only two commissioners—Karen Borman, director of the Surgical Residency Program of Abington Memorial Hospital in Pennsylvania and Ronald Castellanos, a urologist with Southwest Florida Urologic Associates—voted against the MedPAC recommendation.

Castellanos noted that under the plan, a nurse practitioner would be eligible for higher Medicare payment rates than a physician specialist, a prospect that he called "extremely disturbing" because he said the average urologist has undergone about 17,000 hours of training while a nurse practitioner has had no more than 1500 hours.

Castellanos said that specialists who face a growing number of government regulations and declining payment rates are going to ask themselves: "Is it worth it for me to stay in practice?

"I think there are going to be a lot of doctors like myself who are going to say it's just not worth it anymore," he added.

During the deliberations on the plan, many commissioners expressed reservations about the proposal, especially the offsets.

Several said that the list of offsets should not be seen as a recommendation from MedPAC that Congress consider those specific policies to reduce spending growth. In fact, some said they had problems either with some of the precise offsets or with the overarching idea that all of the cuts should come from Medicare rather than other types of government spending. But all of those who voted to approve the recommendation said the time had come to finally stop passing one-year changes to the physician payment formula, and that goal overcame their reservations about the offsets.

In a PowerPoint presentation, MedPAC staff noted, "Offsetting the cost within Medicare compels difficult choices—both in offsets and in fee reductions—that MedPAC may not support outside of the context of repealing the SGR system."

After the vote, lobbyists and other representatives of physicians and other medical professionals lined up to express their unhappiness. Even though most of them expressed support for ditching the current SGR formula, they argued that the costs should not be borne by Medicare providers. Many types of providers are already preparing for other cuts that were in the 2010 health care overhaul (PL 111-148, PL 111-152) and may face additional cuts if Congress passes them this year as part of legislation to reduce the deficit. Two speakers said the medical profession should not pay for higher-than-scheduled payment rates for physicians because providers did not create the flawed formula—Congress did.

"For almost everyone in this room, it's been kind of a disheartening morning," said Barbara Tomar, director of federal affairs for the American College of Emergency Physicians, in a comment that seemed to resonate with the rest of the crowd.

The draft recommendations were:

  • "The Congress should repeal the sustainable growth rate and replace it with a 10-year path of statutory fee schedule updates. This path is comprised of a freeze in current payment levels for primary care and for all other services, annual payment reductions of 5.9 percent for three years, followed by a freeze. The commission is offering a list of options for the Congress to consider if it decides to offset the cost of repealing the SGR system within the Medicare program." Approved 15-2.
  • "The Congress should direct the secretary [of Health and Human Services] to regularly collect data—including service volume and work time—to establish more accurate work and practice expense values. To help assess whether Medicare's fees are adequate for efficient care delivery, the data should be collected from a cohort of efficient practices rather than a sample of all practices. The initial round of data collection should be completed within three years." Approved 17-0.
  • "The Congress should direct the secretary to identify overpriced fee-schedule services and reduce their RVUs accordingly. To fulfill this requirement, the secretary could use the data collected under the process in recommendation 2. These reductions should be budget neutral within the fee schedule. Starting in 2015, the Congress should specify that the RVU reductions should achieve an annual numeric goal—for each of five consecutive years—of at least 1 percent of fee-schedule spending." Approved 16-1.
  • "Under the 10-year update path specified in draft recommendation 1, the secretary should increase the shared savings opportunity for physicians and health professionals who join or lead two-sided risk ACOs. The secretary should compute spending benchmarks for these ACOS using 2011 fee-schedule rates. Approved 15-1, with one abstention."

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